Indian refiners face crude cost surge as Gulf premiums rise, Russian oil discounts vanish

New Delhi: The cost of crude oil for Indian refiners is rising faster than global benchmarks as tightening physical supplies drive premiums higher for Gulf and West African barrels. At the same time, discounts on Russian oil have vanished and those on Venezuelan crude have narrowed sharply.

Brent futures have gained about $10 a barrel in the past two weeks to trade above $91 a barrel on Tuesday.

Also read: Indian refiners scout new crude sources as Gulf risks rise


Physical markets are showing a greater strain, giving suppliers the upper hand to charge premiums and pushing Indian refiners towards the costly spot markets to secure supplies from the Gulf.

"Every trader is asking for a premium," said a refinery executive. Gulf suppliers, for instance, are demanding $3-4 a barrel over the regional Dubai-Oman benchmark, which itself is trading at a $6-7 premium to Brent, the executive said.

This puts the effective cost ofGulf crude at about $10 a barrel above Brent for Indian refiners, he added.

Term-deal supplies cut

Saudi Aramco’s official selling prices for various grades, at $1.5-3 a barrel below Dubai-Oman offer little relief as disruptions in the Red Sea and Strait of Hormuz have curtailed term-deal supplies, executives said.

Indian refiners are increasingly turning to the spot market for Gulf crude, where traders, including trading arms of Gulf national oil companies, are demanding premiums.

These traders are taking greater risks to move cargoes through the troubled waterways, sometimes using dark fleets and ship-to-ship transfers, and are charging a premium for the added risk, said industry executives.

Term-deal supplies are available on a free-on-board (FOB) basis, but too few vessels are willing to call at ports in the conflict zone, they added.

Premiums for West African crude, another major source for Indian refiners, have also widened.

“West African grades appear increasingly unviable,” said another executive.

Indian refiners are looking to source more crude from distant suppliers such as the US, Brazil and Guyana to make up for the shortfall in Gulf supplies and avoid increasingly expensive West African grades.

Also read: India's oil routes under pressure as second West Asia chokepoint shuts

Russian crude mainstay

Russian crude, however, remains the mainstay for deliveries through September.

The situation marks a sharp reversal from early July, when Brent spot prices fell below $70 a barrel after a US-Iran truce took effect. Crude stranded in the Persian Gulf then flowed into the global market, easing concerns over supplies. Last week, Brent spot prices rose above $93 a barrel.

The surge in supplies after the temporary US-Iran truce had also widened discounts on Russian and Venezuelan crude. Discounts on Russian oil have since largely vanished, while those on Venezuelan crude have narrowed sharply, executives said. The 60-day truce expired Monday.

A further tightening of US sanctions on buyers of Russian oil could make it harder for Indian refiners to source crude, executives said. The US Senate recently passed a bill seeking to impose up to a 100% tariff on India, China and other buyers of Russian oil. Such measures could further disrupt global supply and push up crude prices.